Management Accounting

1-1 Management accounting is a discipline that designs planning and performance measurement systems, using financial and nonfinancial information, to help an organization develop and implement its strategy. The information must be relevant and helpful, and customized to serve multiple purposes, such as making decisions, allocating resources, and monitoring, evaluating, and rewarding performance. Information for the “plan” and “do” steps of the PDCA cycle includes prospective data on costs, profits, efficiency, and quality associated with alternative ways to produce or provide goods or services. Information for the “check” and “act” steps includes assessments of how well the organization is achieving its objectives. Common information requirements include measures of cost, quality, profitability, and timeliness.

1-4 Financial measures are inadequate for guiding and evaluating organizations’ trajectories through today’s competitive environments. Financial measures are lagging indicators that could fail to capture much of the value that has been created or destroyed by managers’ actions in the most recent accounting period. The financial measures tell some, but not all, of the story about past actions and they fail to provide adequate guidance for the actions that have created or destroyed future financial value.

The information-age environment for both manufacturing and service organizations requires new capabilities for competitive success. The ability of a company to mobilize and exploit its intangible or invisible assets has become far more decisive than investing and managing physical, tangible assets. Intangible assets enable an organization to:

• develop customer relationships that retain the loyalty of existing customers and enable new customer segments and market areas to be served effectively and efficiently;

• introduce innovative products and services desired by targeted customer segments;

• produce customized high-quality products and...